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Court OKs local phone competition; Long-distance carriers may offer local service to be overseen by FCC; Justices vote 5-3; Ruling is second in week unfavorable to regional companies


WASHINGTON -- The Supreme Court, clearing the way for a major restructuring of the telephone industry and maybe a price break for consumers, approved a sweeping opportunity yesterday for the nation's long-distance companies to compete for local phone business.

By a 5-3 vote, the court approved broad new power for the Federal Communications Commission to oversee local competition, including authority to select a pricing method for the charges new competitors will pay to use local companies' existing facilities and services.

The method the FCC has chosen is more favorable to the long-distance companies, enabling them to offer local service to users at rates that could be below those of the existing companies in those markets.

Without a prominent role for the FCC, the commission and the long-distance companies had argued before the court, local companies would be able to resist new rivals' competition and telephone users would not get the brisk competition that could trim consumers' phone bills.

The FCC's role had been sharply diminished by the 8th U.S. Circuit Court of Appeals in St. Louis, in a ruling that said Congress meant to leave the state utility commissions -- long the only overseers of local telephone service -- mainly in charge.

The Supreme Court majority flatly rejected the argument by the local companies -- the regional Bell companies, GTE Corp. and others -- that the appeals court had accepted. The local companies contended that Congress had denied the FCC a central role in the 1996 Telecommunications Act's introduction of competition into local service areas. They also argued that Congress had left the FCC with only a few, narrow regulatory duties.

"Congress has removed a significant area from the states' exclusive control" and given the decisive role to the FCC, Justice Antonin Scalia wrote for the court's majority. Although the FCC had been confined to regulation of interstate and foreign telephone service for 60 years, the court said, Congress changed all that with the 1996 act.

Yesterday's ruling was the second major setback in a week for the regional Bell companies. Last week, the justices turned aside their plea to make it easier for them to enter the long-distance market after they have to face new rivals in the local market. The FCC is refusing to let the Bell companies -- and only them -- into the long-distance market until it is satisfied they are encouraging competition in the local market.

The court also approved, by unanimous votes, several specific rules the FCC adopted to ease the long-distance companies' entry into local service.

It ruled that the new rivals may not only use the physical facilities of the local companies, but can gain access to such services as operator and directory assistance, call forwarding and call waiting; they may provide local service by exclusively using elements in the local companies' networks instead of building their own; they must be given access to the entire bundle of a local company's network; and any favorable deal given by a local company to one new rival must be given equally to others.

The FCC and the long-distance companies lost on only one point, although it was a key one: The court, by a 7-1 vote, struck down an FCC rule that would have given the new rivals blanket access to elements in a local company's network even if they could buy some of those elements elsewhere.

The court decided that the FCC did not have the authority to spare the new rivals an obligation to buy elements from someone other than the existing local carrier, if available -- even if that meant the new rivals must pay more elsewhere.

"The commission cannot blind itself to the availability of elements outside the incumbent's network," the court said.

But it did not clarify how high the alternative source's price had to be before the new rival could refuse to go to that source and insist on having an element from the local company. Justice David H. Souter was the lone dissenter on that point.

The three justices who dissented from the court's ruling on the FCC's broad role were Chief Justice William H. Rehnquist and Justices Stephen G. Breyer and Clarence Thomas.

Justice Sandra Day O'Connor disqualified herself from the ruling without giving a reason.

Also yesterday, the court unanimously gave companies legal permission to change pension plans to create early retirement programs and use surplus money in the pension plans to finance the benefits.

The 9th U.S. Circuit Court of Appeals in San Francisco had ruled in 1996 that Hughes Aircraft Co. could be sued by retired workers for setting up a new early retirement program out of the surplus generated by those retirees' pension plan.

But the Supreme Court, in an opinion by Thomas, ruled there is no violation of the federal Employee Retirement Income Security Act of 1974 in shifting the surplus to the new program, so long as the company fully funds the benefits still owed to retirees under the plan as it formerly existed.

Pub Date: 1/26/99

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